Making a List? Check it Twice
Date December 22, 2009
Author Connie Jasper Woodroof
Email connie.woodroof@stoneriver.com
December! What other month can bring us so many mixed emotions? Most of us look forward to the holidays (stress) and at the same time start obsessing about our annual statement preparation process (more stress). I can’t help your holiday planning, but I can provide some NAIC information for year-end planning.
As most of you are aware, this has been a rather crazy regulatory year. Many of the items you need to know were not finalized until the December NAIC meeting that was just held. So this list will be a combination of things that resulted from the NAIC meeting and reminders of other items that occurred during the year that will also affect your processes.
SSAP No. 10R
SSAP No. 10R was finalized at the December meeting. The revisions affect the reporting of deferred tax assets (DTAs). However, the version that was finally adopted is not the version that we thought was adopted in September. Many changes have been made since that time, so please review it carefully. Additionally, those of you that are “allowed” to increase the amount of your DTAs will then find that increase will be subject to an additional RBC charge. As a final reminder; the changes that were adopted are only applicable to 2009 and 2010 year-end. Seems like a lot of work for a short-term project!
SSAP No. 43R
Hopefully all of you are aware that SSAP No. 43R was adopted earlier this year with an implementation date of 9/30/2009. Another revision to that SSAP was adopted on Monday, December 21 providing language regarding the new RMBS valuation methods (discussed below). The NAIC is asking companies to approach the cumulative adjustment needed as a result of the adoption of SSAP No. 43R in a rather unique way. They have posted guidance for this issue at http://www.naic.org/documents/committees_e_app_blanks_ssap43r_loan_backed.pdf. The new SSAP also resulted in two new Note disclosures, beginning with the 2009 third quarter reporting. In case you missed those notes, you can find the format and the instructions at http://www.naic.org/documents/committees_e_app_blanks_note_5D_loaned_backed_sec.pdf.
Valuation and Reporting of Residential Mortgage-Backed Securities (RMBSs)
Hopefully, most of you that have non-agency RMBSs in your investment portfolio are aware of the special status of these securities for this year-end. Non-agency RMBSs securities are under regulatory review. As such the securities are no longer allowed to be valued and reported under the current filing exempt (FE) process. Instead, special rules are in effect for this year-end and the ratings will be reported with a Z* suffix. The NAIC has created a website explaining the new valuation and reporting process at http://www.rmbs.naic.org/. The process involves the affected RMBSs to be modeled by a third party contracted by the NAIC, with valuation results to be posted. Please note: In order for companies to access the modeled information needed for RMBS reporting, companies must have paid their assessment invoice mailed by the NAIC in early December. Upon payment of the invoice, companies will be given a user id and password needed to access the information. Questions concerning this new process should be directed to the NAIC.
Blanks Working Group
A handful of previously exposed items were adopted, but none will affect this year-end or the first quarter of 2010, so there is time to catch up on those later. The documentation can be found at http://www.naic.org/documents/committees_e_app_blanks_supplement.pdf. Ten new proposals were released for comment and will be discussed at the March 2010 Meeting. Copies of the exposures can be found at http://www.naic.org/documents/committees_e_app_blanks_0912_items_rec_comment.pdf with comments due to the NAIC by February 24, 2010.
The group also received memos from the SAPWG stating the some new Note disclosures would be needed for year-end 2009 resulting from changes adopted by the group during the year. The most recent additions were disclosures regarding deferred tax assets, guaranty insurance, and subsequent events. There are a several new Note requirements (in total) this year, so please review those instructions carefully. The new Note requirements implemented at the December meeting for this year end can be found at http://www.naic.org/committees_e_app_blanks_09_instructions_revisions.htm.
Statutory Accounting Principles Working Group (SAPWG)
Revisions to SSAP No. 62 were adopted and are effective 12/31/2009. The revisions change accounting treatment for Property/Casualty reinsurance contracts meeting very specific criteria and are in a run-off situation.
Disclosures were revised within SSAP No. 60 beginning with year-end 2009 and reported annually after that date.
SSAP No. 100, Fair Value Measurement, was adopted with a 1/1/2010 implementation date. However, companies may early adopt the SSAP for year-end 2009 (and all the new disclosures contained therein!).
A change to the subsequent event disclosures required in SSAP No. 9 was also adopted. Company now must indicate the date of reporting evaluation for any reported subsequent events.
Several items were exposed for comment and can be found at http://www.naic.org/committees_e_app_sapwg.htm. Comments are due by February 11, 2010.
Emerging Accounting Issues Working Group (EAIWG)
INT 09-08, Accounting for Loans Received Under the Federal TALF Program was adopted clarifying the reporting of the both the loan and the required collateral under TALF (Term Assets-Backed Securities Lending Facility).
An interpretation covering Re-Securitization of Loan-Backed and Structured Securities (ReREMICs) was rejected. The issue will be addressed at a later date by SAPWG.
Capital Adequacy Task Force
Via a conference call held after the December meeting, this group adopted a sensitivity test for all of the RBC formulas regarding the change in the reporting of deferred tax assets (DTAs). However, due to the lateness of this proposal, the sensitivity test will have to be posted to the NAIC website and submitted separately from the regular RBC filing. Additionally, a charge to be applied to DTAs in the LRBC formula was also adopted. Instructions will be forthcoming on the website.
Other items discussed were the possible “modernization” of the PRBC formula and more work on reviewing the accuracy of companies’ reported Schedule P information.
Rating Agency Working Group
Several months ago I mentioned the formation of this group. In the meantime, they have diligently been working on a recommendation to present to the NAIC membership. That document has now been released for comment and can be found at http://www.naic.org/committees_e_rating_agency.htm, with comments due by January 6. This document is well worth taking a few minutes to read; it would reinstate a lot of the SVO responsibilities that have been eliminated in the last few years.
Climate Change and Global Warming Task Force
Plans for the first Climate Risk Survey moved forward in December. A draft listing of the companies that will need to complete the survey (based on their level of direct written premium) was reviewed as well as a possible format for a cover letter that will be sent to insurers regarding the survey. Since the survey results will be public information, it appears the NAIC will utilize an on-line survey mechanism such as Zoomerang or SurveyMonkey to collect survey results.
The NAIC is publishing meeting summaries that are readily available to the public within 24 hours of the committee session at the NAIC National Meeting. If there is committee activity your company is interested in reviewing that was not included in the Focus, you might be able to find what you need at http://www.naic.org/meetings0912/summaries.htm. But remember, these are only summaries, not details.
This is the last NAIC Focus of 2009! I am wishing you each a smooth year-end process. See you next year!
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StoneRiver, Inc. does not render legal services or advice. This newsletter is not intended to substitute for legal advice, which can be rendered only by an attorney.
